Long Decline in Young-Adult Homeownership Be Nearing an End?

Driven by demographic and social shifts, the number of young homeowners in the U.S. has been in decline for decades, with the exception of a brief growth spurt during the housing boom. During the depth of the housing bust and Great Recession, the number of owner-occupants between the ages of 25 and 34 plummeted by more than 300,000 annually, despite strong population gains for this age group. Declines have moderated recently, however, as the number of young homeowners fell by fewer than 100,000 in 2013 and was essentially flat in 2014.

Given that the young-adult population is expected to expand robustly during the second half of the decade, it would take only modest further improvements in homeownership rate trends for the number of young homeowners to return to growth. Fannie Mae’s Economic & Strategic Research Group produced several projection scenarios in which young-adult homeownership rates:

1) continue to decline at the recent pace;
2) remain constant at current levels; or
3) recover slightly, returning by decade’s end to the long-term trend.

Applying the three homeownership rate paths to recent Census Bureau population projections yields several alternative scenarios for future growth in the number of young owner-occupants (see chart). Should homeownership rates continue to decrease at the current pace, the number of young owner-occupants would fall, but at a substantially slower pace than during the housing bust. Should rates merely stabilize, strong population growth would generate a slightly faster pace of increase in young homeowners than during the housing boom period of 2000 to 2005. And, if rates were to recover just slightly, young owner-occupants would increase at a rate twice that observed during the boom.

Even Modest Improvements in Rate Trends Would Generate Increases in Young Owners

Average Annual Change in Owner Occupants

Which of these projection scenarios is most likely to occur? It’s difficult to predict, but given that young adults are experiencing steady job gains and the beginnings of an income recovery, and given their persistently strong aspirations for homeownership, stability or modest improvement in homeownership rates is certainly plausible. Recent efforts to expand mortgage credit for first-time homebuyers also could help nudge the young-adult homeownership rate in a positive direction.

Resumed growth in the number of young homeowners would stand out from the experience of recent decades, in which declines have been the norm. A return to modest growth in young homeowners could have several implications for the housing industry, including creating the need to adjust the size, type, and geographic location of new housing construction, to expand education and counseling efforts targeted at inexperienced homeowners, and to step up efforts to provide services and technologies suitable for youthful homebuyers.

Source: U.S. Census Bureau: Decennial Census, American Community Survey 1-Year Estimates, Population Estimates, and Population Projections; Fannie Mae Economic & Strategic Research projections